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PwC | Insurance facts and figures 2016 | 1
Contents
A year in review 2
The figures 5
PwC | Insurance facts and figures 2016 | 2
A year in review Welcome to PwC’s Insurance Facts and Figures. The insurance industry is as competitive as ever with all elements grappling with the effects of various drivers of change, including changes in social behaviour, developments in technology, long term low economic growth prospects, volatile weather patterns and events, and a continually evolving political and regulatory environment.
We summarise briefly below how these drivers have impacted the general insurance, life insurance, private health insurance and insurance intermediaries sectors in calendar year 2015. This commentary is supplemented by a summary of financial statistics for the larger players in each sector.
General insurance
Financial performance
Overall, according to APRA1 statistics for the period ending 31 December 2015 net earned premium for the Australian general insurance industry has declined slightly from $31.7bn in 2014 to $31.3bn.
Premiums for retail classes has seen moderate growth this year despite the increased competition from “challenger” insurers such as Auto & General and Youi. In the accompanying general insurance table, these businesses have grown to be ranked 10th and 11th respectively after 15 and 10 years of business in Australia. The focus by businesses like these on innovation in product design, distribution and customer experience; by leveraging evolving customer expectations and digital technology, has been key to differentiating in a market where insurance is now more bought than sold.
Conversely, commercial insurance has seen significant pressure on pricing in 2015. In a low growth economic environment with strong capital availability and active intermediaries, commercial insurers have had to reduce prices across a number of classes to retain or attract new business. Mergers and acquisitions, such as the ACE/Chubb, XL/Catlin and IAG/Wesfarmers deals are not surprising in a highly competitive local and global market. More deals can well be expected.
Equally challenging for all insurers has been the greater frequency of natural catastrophes during 2015. The range of catastrophes has been broad in terms of nature, magnitude and cost, leading to insurers bearing the cost of multiple retentions before reinsurance and having their reinsurance programs put to the test. This has specifically impacted short tail property classes of business which is reflected in the increase in the industry’s net loss ratio to 75% as at 31 December 2015 from 64% in 2014 according to APRA1.
Historically low interest rates and fluctuations in equity markets have contributed to continued low investment returns. Some insurers have explored non- traditional investment options in a bid to improve return on investment. According to APRA1, investment income for the industry has declined from $4.2bn in 2014 to $2.2bn as at 31 December 2015.
To maintain profitability the insurers have continued to focus on cost management initiatives through the simplification/streamlining of key processes, exploring off-shoring and outsourcing arrangements, and undertaking larger scale transformation programmes.
Regulation and tax developments
On the regulatory front, the revised prudential standards, CPS 220 (Risk Management) and CPS 510 (Governance), came into effect on 1 January 2015. The standards seek to harmonise risk management and governance requirements across Authorised Deposit- taking Institutions (ADI) and Insurers (both Life and General). The current APRA focus is more on monitoring the application of existing standards rather than the release of new requirements.
For some time now, the Australian Taxation Office (ATO) has raised concerns over the methodology used by general insurers to calculate the value of their Outstanding Claims Liability (OCL). Specifically, the ATO has been questioning whether the Probability of Adequacy (POA) adopted by insurers is acceptable for taxation purposes and is concerned that in some instances, insurers may be considering extraneous factors and reserving at a higher level than what they consider appropriate for tax purposes.
As an administrative measure, the ATO has proposed that a declaration be completed by a general insurer when lodging its tax return such that a representative of the Board declare that the POA used for the closing value of the OCL has been determined based on the underwriting experience of the company and has not been influenced by certain extraneous factors.
1 APRA Statistics Quarterly General Insurance Performance Statistics December 2015 (issued 18 February 2016)
PwC | Insurance facts and figures 2016 | 3
Life insurance
Financial performance
According to APRA2, as at the 31 December 2015 total revenues for the life insurance industry in Australia has declined dramatically from $42bn in 2014 to $33.5bn. The decline is driven by lower investment yields, reflecting the volatility in equity markets and continued low interest rates. This deterioration has been partially offset by some growth in life risk premium income.
Life risk net earned premium has increased through the combination of growing volumes and price rises. The MySuper reforms that were introduced in 2013 have helped to contribute to increased volume in the group life insurance market.
Individual lump sum risk products continued to be profitable for life companies in 2015 while individual disability income saw a worsening experience for some insurers during the year. After price strengthening and product and process improvements, 2015 saw a return to profitability for Group life lump sum business.
In October 2015, National Australia Bank (NAB) sold 80% of its life insurance business to Nippon Life, a new entrant into the Australian life market. Before the sale, 4 of the top 9 life businesses were owned by the major banks. NAB’s disposal raises questions around whether banks continue to see strategic value in the bancassurance model in Australia.
As with general insurance, life insurance customers are becoming more self-directed through the use of social and digital resources and, as a consequence, a number of life companies have continued to develop and implement strategies to support life sales through multiple channels. This focus on innovation in the development of tailorable life products for the mass market that can be bought or sold through various channels will continue in earnest in 2016.
Regulatory
In November 2015, the Federal Government released its life insurance remuneration bill that is the culmination of reviews by ASIC, John Trowbridge, and industry into the structure of commission payments for life insurance sales and concerns over its influence on sales behaviour.
The key parts of the changes relate to:
• the capping from July 2016 of the amount of upfront and trail commissions that can be earned on the sale of a life policy. The capping commences from 1 July 2016 at 80% and 20% of premiums for upfront and trail commission respectively, transitioning to 60% and 20% respectively from 1 July 2018;
• a two year commission claw back if the policy is surrendered within its first two years; and
• a ban on volume based payments from 1 July 2016 with grandfathering arrangements.
The bill remains before the senate and with the federal election to be held on 2 July 2016, appears unlikely to be passed until towards the end of 2016. This will mean potential changes to its scope as well as effective dates.
Regulatory scrutiny of the life insurance industry has increased beyond financial advice due to recently reported instances of poor claims conduct in the industry. On the 2 February 2016, the senate standing committee extended the scope of its Scrutiny of Financial Advice inquiry to assess the need for additional oversight and/or reform of the life insurance industry with respect to its conduct in dealing with customers.
ASIC has also been charged with assessing the extent of industry issues relating to claims acceptance practices.
2 APRA Statistics Quarterly Life Insurance Performance December 2015 (issued 16 February 2016)
PwC | Insurance facts and figures 2016 | 4
Health insurance
Financial performance
Premium income has grown due to increased membership combined with an average rate increase of 6.18% approved by the Federal Government and effective for the year from 1 April 2015. This was partially offset by lapses and downgrades in cover as policyholders seek to reduce the cost of their health insurance.
Increasing health costs and the ageing Australian population are contributing to a rise in benefits paid. For some private health insurers, these increased costs are mitigated to some degree by the risk equalisation trust fund structure.
To support growth and customer retention, a number of health insurers are expanding their product offerings to policyholders. Following the privatisation of Medibank Private, the Federal Government is considering the potential for reform of the private health insurance model, including the community rating principle. On 28 October 2015, the Minister for Health announced consultations focused on the value of private health insurance for consumers and its long term sustainability. The main finding of the consultations was the cost of health insurance; its affordability and lack of value for money were the main issues of concern. On 5 February 2016, an industry working group was established to examine ways to improve the pricing and accessibility of the private health insurance sector.
Regulatory change
From 1 July 2015, the responsibility for the prudential supervision of Private Health Insurers (PHI) transferred from Private Health Insurance Administration Council (PHIAC) to the Australian Prudential Regulation Authority (APRA). The intention is for APRA to leverage on existing prudential requirements and reporting standards administered by PHIAC with minimal change in the near future. In particular, no changes were proposed to the capital adequacy and solvency standards before 1 July 2016.
Insurance intermediariesInsurance intermediaries are operating in a very challenging environment where the maintenance of market share and profitability is no longer assumed. Across the industry revenue has grown, for some through acquisition and others through the provision of services that traditionally sat outside of standard insurance intermediation.
Financial performance
Downward pressure on insurance premiums, particularly in the commercial general insurance sector, has meant that intermediaries have received less commission income than last year for the same book of business. At the same time, as insurers look to use data and social technology to secure relationships with customers, possibilities for disintermediation are emerging, further contributing to the rising competitiveness of the intermediary market. In response to such pressures, intermediaries have progressively looked to grow through acquisition and the offering new services. With the growing self-sufficiency of customers, intermediaries are now expected to bring greater value than has traditionally been the case. As such, often through acquisition of related companies, intermediaries are providing risk consulting, advisory and insurance support services.
Arthur J. Gallagher, Steadfast and Austbrokers have been particularly active in growth through acquisition in the Australian market, although 2015 has seen fewer deals than in the last couple of years.
In order to maintain and improve profit margins, intermediaries are continuously seeking out areas to drive efficiencies, optimise processes and reduce costs. A common area where cost reduction has been achieved is outsourcing and/or off-shoring of certain back office functions.
PwC | Insurance facts and figures 2016 | 5
Entity Year end Ranking measure Performance Financial position
Net earned premium Underwriting profit/(loss)
Net investment income
Profit after tax Net outstanding claims
Investment securities
Capital adequacy multiple
Total assets
Current $m
Current rank
Prior $m
Prior rank
% change
Current $m
Prior $m
Current $m
Prior $m
Current $m
Prior $m
Current $m
Prior $m
Current $m
Prior $m
Current Prior Current $m
Prior $m
QBE Insurance Group 12/15 16,496 1 15,666 1 5% 843 608 891 905 928 833 21,050 20,663 35,631 33,792 1.72 1.67 57,728 54,865
Insurance Australia Group
06/15 10,329 2 8,644 2 19% 541 1,140 793 839 830 1,330 8,974 8,758 15,535 15,377 1.70 1.72 31,402 29,748
Suncorp 06/15 7,865 3 7,726 3 2% 495 710 578 756 756 1,010 7,453 7,115 5,706 6,005 1.40 1.96 24,759 25,166
Allianz Australia 12/15 3,455 4 3,209 4 8% 61 (27) 184 452 232 359 4,794 4,437 5,632 5,031 1.35 1.45 11,836 10,943
Munich Reinsurance Australia
12/15 934 5 1,073 5 (13%) (91) (141) 83 174 (72) (163) 1,753 1,524 3,443 3,279 1.55 1.29 5,407 5,386
Zurich Australian Insurance
12/15 848 6 962 6 (12%) (142) (118) 63 116 (51) 8 1,350 1,334 1,876 1,966 1.41 1.50 3,975 4,115
RACQ Insurance 06/15 627 7 617 7 2% 38 80 58 56 51 93 643 623 1,464 1,475 2.18 2.13 2,478 2,355
Commonwealth Insurance
06/15 616 8 561 8 10% (18) 104 16 14 (4) 77 232 113 470 419 1.71 2.19 970 871
Westpac Insurance 09/15 472 9 446 10 6% 89 158 16 23 75 127 146 122 556 537 1.63 1.56 1,098 973
Genworth Financial Mortgage Insurance
12/15 470 10 446 9 5% 235 243 105 226 226 323 276 230 3,612 3,795 1.46 1.44 4,013 4,176
Youi Holdings 06/15 460 11 321 13 43% (26) 21 12 8 (12) 23 103 51 373 285 2.12 2.96 740 529
Auto & General Insurance Company
06/15 378 12 312 15 21% 44 60 8 7 11 18 52 41 140 150 1.30 1.80 433 362
Chubb Insurance 12/15 350 13 340 12 3% (24) (21) 35 116 7 66 543 567 1,188 1,218 2.40 2.50 1,566 1,598
Swiss Re 12/15 342 14 370 11 (8%) 45 92 35 55 24 98 647 698 1,113 1,147 1.60 2.12 2,630 2,665
RACI 06/15 336 15 320 14 5% 58 66 9 10 13 24 53 45 223 228 2.05 2.85 512 532
Lloyd's1 12/15 1,688 NR 1,913 NR (12%) n/a n/a n/a n/a n/a n/a 1,545 1,479 2,396 2,431 n/a n/a 2,425 2,440
Source: Published annual financial statements or APRA annual returns that were available at 30 April 2016.
General insurance
Notes:
1. Lloyd’s Underwriters are authorised in Australia under special provisions contained in the Insurance Act 1973. Because of the unique structure of the Lloyd’s market, Lloyd’s reports to APRA on a different basis from Australian general insurers. Lloyd’s is required to maintain onshore assets in trust funds and as at 31 December 2015 its Australian assets comprised of $2.4bn in trust funds and a statutory deposit of $1m.
2. World wide premium is included for those companies/groups based in Australia, while only premium under the control of the Australian operations are included for those with overseas parents.
3. Where a group has significant non-general insurance operations, only performance and position information relating to general insurance is shown, subject to availability. Where explicit data is not available an estimate has been derived using the information in the
annual financial statements. In some instances this also involves estimating a notional tax charge for the profit after tax. Outstanding claims are net of all reinsurance recoveries.
4. Where applicable, comparatives have been updated to be in line with updated comparatives in current year financial reports.
5. Financial information denominated in a foreign currency has been translated using the closing and average rate for the applicable financial year.
6. For insurance groups with multiple capital adequacy ratios, an average mean has been calculated. Adjustments have been made to the mean if it is skewed by outliers.
PwC | Insurance facts and figures 2016 | 6
Life insuranceEntity Year end Ranking measure Performance Financial position
Net insurance premium revenue Net investment revenue
Total comprehensive income/(loss)
Net policy liabilities
Capital adequacy multiple
Investment securities
Total assets
Current $m
Current rank
Prior $m
Prior rank
% change Current $m
Prior $m
Current $m
Prior $m
Current $m
Prior $m
Current Prior Current $m
Prior $m
Current $m
Prior $m
AMP Life 12/15 2,161 1 2,149 1 1% 5,619 9,342 805 920 93,632 91,280 2.30 2.16 97,819 95,746 103,646 101,622
MLC (NAB) 09/15 1,660 2 1,570 2 6% 4,539 6,162 398 189 76,136 71,485 2.20 1.34 76,441 72,377 79,908 75,804
The Colonial Mutual Life Assurance Society
06/15 1,483 3 1,395 3 6% 995 1,282 315 283 11,153 11,454 2.67 2.71 12,764 13,020 13,526 13,753
TAL Life 03/15 1,466 4 1,171 4 25% 313 263 185 134 2,127 1,881 1.36 1.37 3,039 2,821 5,318 4,715
OnePath Life 09/15 1,263 5 1,035 7 22% 1,853 2,736 437 272 35,152 34,290 1.70 1.78 35,008 33,604 39,068 37,856
AIA Australia 11/15 1,137 6 1,045 6 9% 88 135 72 59 1,386 1,287 1.60 1.52 2,160 1,910 3,974 3,494
Swiss Re Life & Health Australia
12/15 992 7 1,062 5 (7%) 65 119 62 38 2,472 2,309 1.87 1.77 3,109 3,103 3,851 3,865
RGA Reinsurance Company of Australia
12/15 709 8 636 9 11% 32 71 (26) 4 611 492 1.35 1.39 1,136 991 2,427 2,194
Westpac Life 09/15 704 9 613 11 15% 469 565 253 239 6,763 6,816 2.81 2.75 8,247 8,106 8,740 8,508
MetLife Insurance 12/14 542 10 342 14 58% 42 24 (11) (51) 466 310 2.05 1.95 671 526 1,228 372
Suncorp Life & Superannuation
06/15 534 11 707 8 (24%) 506 716 95 (95) 5,379 5,513 2.10 1.80 6,408 6,425 7,553 7,548
Hannover Life Re of Australasia
12/15 514 12 466 13 10% 75 68 (2) 27 1,488 1,289 1.32 1.37 1,747 1,537 2,327 2,162
Munich Reinsurance Company of Australasia
12/15 505 13 568 12 (11%) 72 161 (17) (378) 1,103 1,066 1.33 1.44 2,382 2,094 3,594 3,715
Challenger Life Company
06/15 491 14 621 10 (21%) 1,306 1,330 326 368 8,693 7,824 1.60 1.70 11,532 10,291 18,218 16,929
Zurich Australia 12/15 271 15 241 15 12% 102 221 54 78 1,370 1,712 2.78 3.62 1,998 2,259 2,406 2,706
Source:
Published annual financial statements or APRA annual returns for Australian life insurance operations that were available at 30 April 2016.
Where applicable, comparatives have been updated to be in line with updated comparatives in current year financials reports.
Notes:
For insurance groups with multiple capital adequacy ratios, an average mean has been calculated.
Adjustments have been made to the mean if it is skewed by outliers.
PwC | Insurance facts and figures 2016 | 7
Health insuranceEntity Ranking measure Performance Financial position Ratios
Contributions Membership Other revenue Profit after tax Outstanding claims
Investment securities
Net assets Total assets Benefits paid/contributions
Net margin
Current $m
Current rank
Prior $m
Prior rank
% change
Current m
Prior m
Current $m
Prior $m
Current $m
Prior $m
Current $m
Prior $m
Current $m
Prior $m
Current $m
Prior $m
Current $m
Prior $m
Current Prior Current %
Prior %
Medibank Private 5,795 1 5,500 1 5% 1.85 1.83 144 150 318 266 569 357 1,969 1,899 1,356 1,315 2,964 2,805 0.86 0.87 5.4% 4.4%
BUPA Australia Health 5,760 2 5,351 2 8% 1.73 1.68 91 89 329 341 434 506 1,116 1,292 511 564 1,741 1,805 0.85 0.85 6.5% 7.4%
The Hospitals Contribution Fund of Australia
2,347 3 2,213 3 6% 0.68 0.68 88 92 153 72 159 153 1,204 992 1,116 962 1,685 1,535 0.90 0.94 2.8% (0.8%)
NIB Holdings 1,430 4 1,314 4 9% 0.51 0.49 36 36 75 64 88 84 370 318 231 206 587 507 0.87 0.88 5.1% 4.2%
HBF Health 1,288 5 1,229 5 5% 0.47 0.47 63 83 73 112 107 100 1,379 1,183 1,176 992 1,586 1,354 0.88 0.87 0.8% 2.5%
Australian Unity Health 632 6 600 6 5% 0.20 0.20 14 12 34 26 59 56 192 181 125 113 345 323 0.84 0.85 5.7% 4.5%
Teachers Federation Health
486 7 434 7 12% 0.13 0.12 14 17 27 19 37 38 275 246 258 235 369 338 0.90 0.93 2.8% 0.4%
GMHBA 376 8 341 8 10% 0.13 0.12 10 11 23 20 30 28 186 210 184 161 286 255 0.87 0.87 3.5% 2.6%
Defence Health 368 9 331 9 11% 0.11 0.11 26 18 21 20 41 36 317 126 255 234 349 316 0.95 0.94 (1.3%) 0.7%
CBHS Health Fund 324 10 293 10 11% 0.09 0.08 12 16 17 17 32 29 208 108 167 150 238 218 0.92 0.93 1.6% 0.5%
Westfund 155 11 142 11 9% 0.05 0.05 3 5 4 6 16 17 123 115 115 111 163 154 0.87 0.86 0.6% 0.8%
Grand United Corporate Health
140 12 127 13 10% 0.03 0.03 5 (3) 6 3 15 15 47 51 50 44 87 82 0.82 0.83 2.8% 6.4%
Latrobe Health Services 137 13 129 12 7% 0.04 0.04 5 6 7 11 11 9 156 149 146 139 187 174 0.90 0.86 0.9% 4.4%
Queensland Teachers' Union Health Fund
128 14 115 15 12% 0.03 0.03 2 5 (4) 5 8 8 28 26 85 89 119 115 0.95 0.91 (4.7%) 0.6%
Health Partners 128 15 122 14 5% 0.04 0.04 6 8 3 8 7 6 48 49 107 100 130 122 0.93 0.90 (2.5%) 0.2%
Source:
The statistics are in respect of registered health benefit organisations as reported in the APRA annual statistics as at 30 June 2015 and PHIAC annual statistics 30 June 2014.
Notes:
Membership is based on the number of policies in force. Other revenue comprises mainly of investment income. Benefits ratio is calculated as benefits paid as a proportion of contributions. Where there are more than one entity within the group a weighted average based on contributions is used to estimate overall net margin.
PwC | Insurance facts and figures 2016 | 8
Insurance intermediariesEntity Year end Ranking measure Performance Financial position
Consolidated revenue (Incl. interest and other income)
Consolidated total comprehensive income/(loss) for the period
Consolidated current ratio
Consolidated net assets
Consolidated total assets
Current $m
Current rank
Prior $m
% change Current $m
Prior $m
% change Current Prior Current $m
Prior $m
Current $m
Prior $m
Aon Corporation Australia
12/15 721 1 697 3% 106 98 8% 1.01 1.04 434 495 2,141 2,420
Marsh Mercer Holdings (Australia)
12/14 717 2 700 2% 109 100 9% 1.47 1.26 778 669 1,508 1,552
Steadfast Group 06/15 280 3 172 63% 47 28 68% 1.13 1.12 842 525 1,616 822
Jardine Lloyd Thompson Australia
12/15 254 4 217 17% 43 38 13% 1.09 0.96 94 78 413 348
Austbrokers Holdings 06/15 197 5 178 11% 43 42 1% 1.16 1.15 311 270 675 626
Willis Australia Holdings
12/15 97 6 92 5% 1 3 (67%) 1.08 1.08 56 54 614 478
Arthur J. Gallagher & Co (Aus)
12/14 54 7 133 (59%) (4) 14 (130%) 1.06 1.17 118 66 439 447
Source:
Published annual financial statements that were available at 30 April 2016.
Notes:
Consolidated current ratio has been calculated by dividng current asset for the entity by its current liability.
Contacts
If you would like to explore further the trends described in this publication, please contact your usual PwC representative or:
pwc.com.au/insurance
© 2016 PricewaterhouseCoopers. All rights reserved.
PwC refers to the Australia member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. At PwC Australia our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.au.
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. Liability limited by a scheme approved under Professional Standards Legislation.127035928
Scott FergussonNational Leader, Insurance
+61 2 8266 [email protected]
